The FCA is to consult on the introduction of a 15-year long-stop for financial advisers as part of the Financial Advice Market Review.
In a consultation paper on the FAMR jointly published by the FCA and the Treasury today, the regulator says it will evaluate the options around implementing a long-stop.
The FCA says it will consider the following options: maintaining the current regime, introducing a long-stop, introducing varied limitation periods linked to the terms of products, strengthening professional indemnity insurance, and setting up a compensation fund.
It says the long-stop could be for 15 years, or “a different time period recognising the long life of financial services products”.
The FCA says enhanced PI cover for advisers would include cover sufficient to meet claims relating to long-term advice, whether the firm is still in business or not.
The compensation fund would pay out in the event of a justified claim older than 15 years against an individual firm, which all firms would contribute to. However, unlike the Financial Services Compensation Scheme, the fund would not require the firm to be insolvent before paying out.
The consultation paper says: “There is a concern that firms perceive that the risks they face are too high as a result of their ongoing liability, and so may be discouraged from providing advice about long-term products. Similarly, the absence of a longstop could potentially cause a barrier to entry or exit from the financial advice market, either for individual advisers or firms.
“The absence of a long stop may further contribute to higher costs to firms through greater PI insurance premiums across the industry.
“As part of our review we will be evaluating the options around implementing a longstop. This will include considering if it may be possible to put in place an alternative approach to providing an appropriate level of protection for consumers which might also remove or reduce the burden of indefinite liability on individual firms.”
The paper says that in 2014/15, only 254 cases were taken to the Financial Ombudsman Service against advisers relating to incidents which occurred more than 15 years ago. Of these, 30 per cent, or 76 cases were upheld.
The regulator said it would consider the case for a 15-year long stop on complaints to the Financial Ombudsman Service in its 2014/15 business plan, published in March 2014.
Talks were delayed after the FCA pointed to an EU directive as a barrier to progress. But in December the regulator confirmed the directive would not stand in the way of a long-stop.